RBS, Shell pace FTSE decline

French Connection tumbles after CEO share sale

LONDON (CBS.MW) -- Royal Bank of Scotland and Shell Trading and Transport were among decliners in London Tuesday, with the broader market keeping to a tight range as an interest rate decision from the Federal Reserve nears.

Disappointing consumer confidence figures in the U.K., with the measure falling to -4 in June from -2 in May, also weighed on the benchmark British index.

The pollsters, Martin Hamblin GfK, said Bank of England rate hikes, and threats of more to come, have made consumers wary to make major purchases. The survey has hit the lowest point for 2004.

The FTSE 100 index (1805550) eased 0.1 percent at 4,512, and European markets were mostly lower. See Europe markets.

Top decliners included Royal Bank of Scotland (RBS), and Shell Trading and Transport (SHEL)
SC, -2.03%
both of which slid 1 percent.

RBS was hit by concern over its U.S. unit after Washington Mutual's profit warning, while Credit Suisse First Boston advised investors to switch out of Shell Trading and Transport (SHEL)
SC, -2.03%
shares in favor of BP (BP)
BP, -1.29%
which slightly revised upwards its proven oil reserves.

"This confirms that Shell's reserve downgrade and weak reserve position are Shell specific and not generic. Shell's low 10.2 year reserve life and high finding costs indicate likely poor production growth relative to peers, lower returns on development and capex pressure, which is already evident," CSFB said.

Tobacco group Gallaher (GLH)
GLH, -5.67%
fell 2.2 percent after Irish cigarette volumes were hit 9.3 percent in the first five months of the year. Ireland recently enacted a smoking ban in the workplace. "It is too early to assess the extent to which this reduction is due to short-term changes in trade buying patterns or to longer-term changes in consumption," Gallaher said.

Its core U.K. market has benefited from a reduction in cross channel trade with total cigarette market volumes estimated to be down around 1 percent when compared with 2003. Cigarette volumes for the company as a whole have increased over 6 percent in the first five months, lifted by growth in the former Soviet republics.

ITV (ITV) eased 1 percent after Ofcom, the British communications regulator, said it is starting a consultation into a proposed valuation methodology for licenses for its over-the-air Channel 3. Hopes that Ofcom will slash ITV license fees have helped buoy its shares in recent sessions.

Ofcom said it will propose a broadly similar valuation model, based on discounted cashflow valuation, but take note of the regulatory reform that has led to a less intrusive regime for broadcasting licensees.

BA, BAE boosted by broker notes

Of gainers, British Airways (BAY)
BAB, +0.14%
improved 2.2 percent after JP Morgan upgraded shares to overweight from neutral, citing returning pricing power. It said it has seen the first catalyst, with the first corporate contract renewal having taken place with a smaller discount than the year before. "We believe that this sets the scene for an eventual revenue recovery, although it will likely still take time to feed through to earnings," the broker said.

Outside the FTSE 100, U.K. home builder Persimmon (PSN) ended up 1.7 percent in a rocky session. It said it anticipates consensus expectations-topping record profits in the first half, as volumes have risen around 8 percent and margins have improved. It said it has a record order book with total sales for 2004 of 10,400 homes, and due to that forward booking, will see lower volumes of sales on a comparative basis during the summer months with prices remaining stable.

Retailer French Connection (FCCN) tumbled 6.4 percent after it reiterated that overall performance continues to be in line with its expectations amid disclosing that Chairman and CEO Stephen Marks is placing eight to nine million shares with institutional investors via Deutsche Bank.

Marks, who will retain a stake of between 41.9 percent and 42.9 percent of the company, is selling the shares "to meet personal requirements," the company said. French Connection said its U.K. retail business has been weak compared to last year's very strong first half, but the wholesale business has performed well. Furthermore, the North America and licensing businesses both continue to show good growth, it said.

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